BHP Going to Pot or Ashing Competition

PotashCorp's assets are a fertile stomping ground for the likes of BHP but there are still some very real risks

Mark Taylor 19 August, 2010 | 5:40PM
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BHP Billiton made a hostile $40 billion all-cash bid to acquire Canada's Potash Corporation of Saskatchewan. The offer is pitched at a 20% premium to PotashCorp's August 11 closing price or a 33% premium to the two-month volume weighted average price. PotashCorp's board unanimously rejected the offer as inadequate. The offer is open to October 19 unless extended.

BHP says the bid:
-- is consistent with its strategy of adding Tier 1 assets;
-- lends further commodity and geographical diversification;
-- accelerates entry into the fertilizer industry;
-- is a natural fit with existing greenfield Saskatchewan land holdings;
-- will be earnings accretive in the second full fiscal year following consolidation;
-- will not halt progress in plans to develop its own Jansen potash mine;
-- is conditional upon 50% acceptances and termination of the PotashCorp shareholder rights plan; and
-- will be debt funded.

The rights plan is a poison-pill defense that triggers an issue of new shares if any one party acquires a stake of 20% or more in PotashCorp. One share purchase right is issued for each common share at a substantial discount to the prevailing price. Some "permitted bids" will not trigger the rights if they are open for a minimum 90 days and are supported by a majority of shareholders.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
BHP Group PLC1,867.80 GBX-1.27Rating

About Author

Mark Taylor  is an equity analyst at Morningstar.

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